Even asset managers fear gold confiscation

January 3rd, 2011

The issue of gold confiscation has long been the primary scare tactic behind the sale of overpriced collectible and numismatic coins. So pervasive has the fear become that even asset managers who control billions of dollars fear confiscation—according to mineweb.com’s top story for 2010.

The story, posted June 10, 2010 on Mineweb.com’s site became the site’s “top story,” which probably means the article received the most hits of all the articles posted on the site in 2010. The question remains: Is the fear valid or has the story been told so many times that it has taken on a life of its own?

Unfortunately, there is precedent for government “confiscation.” In 1933 President Franklin Roosevelt “called-in” all gold coins, gold certificates and gold bullion under Executive Order 6102. Further, Obama supposedly is a “student of Roosevelt’s policies,” which means he probably is aware of Roosevelt’s call-in.

When Roosevelt issued EO 6102, the prevalent gold coins were Double Eagles ($20 gold coins, both $20 Liberty Heads and St. Gaudens.) Under EO 6102, all Double Eagles were supposed to have been turned in. This begs the question: If Double Eagles were supposed to have been turned in under Roosevelt’s 1933 call-in, would they be exempted from a future call-in?

Here’s the tenuous reasoning: Under EO 6102 “gold coins having recognized special value to collectors of rare and unusual coins” were exempted; therefore, $20 Liberty Heads and $20 St. Gaudens that have been graded MS62 or higher would be exempted from any future call-in. Would this necessarily be the case?

The coins exempted in 1933 were gold coins having “recognized special value to collectors of rare and unusual coins.” Since the mid-1980s when independent, third-party graded began, hundreds of thousands of common-date Double Eagles have been slabbed MS62, MS63 and MS64. So, would they be classified “rare and unusual” under another call-in? In my opinion, no. Further, consider this: How could an investor owning 20, 30 or even 100 MS62 Double Eagles assert that the coins are “rare and unusual?”

However, the a bigger issue is not whether the MS62, MS63 and MS64 Double Eagles would be exempted in any future call-in, but the prices at which telemarketers sell the coins.

Premiums on slabbed common-date Double Eagles fluctuate widely. At times, in the REAL market, they carry 30% – 40% premiums: other times premiums can be as low as 10%. In the 1990s, ungraded Double Eagles traded at bullion coin prices. Regardless, the prices at which the telemarketers sell the coins is the issue.

Some telemarketers add 20% – 30% to the REAL price; some tack on 50%; and, a few actually double the prices at which they sell common-dated slabbed MS62, MS63 and MS64 Double Eagles. We have seen instances where buyers bought years ago when gold was half the price it is today, but they still lost money on their purchases of “non-confiscatable” gold coins.

Investors need to be aware of what really drives the so-called “numismatic coin market.” The telemarketers drive it. As the price of gold moves higher, premiums on such coins will shrink, sometimes providing small profits, sometimes resulting in no profits. (See our page Telemarketers Under Attack.)

CMI Gold & Silver Inc. does not recommend “numismatic coins;” we recommend gold bullion coins. Still, we have access to the same coins promoted by telemarketers at much lower prices. Before buying from a dealer who constantly lays out the “non-confiscatable” story, check our prices. You will find big differences.

Facts are anything you own is “confiscatable” by the government. Don’t pay your property taxes, your house goes on the auction block. Don’t pay vehicle taxes, you car goes to auction. Don’t fork over a HUGE portion of your annual income to the government, your freedom is confiscated as you go to jail.

The point I tried make is that the coins coins being promoted by telemarketers really are not numismatic but are overpriced bullion coins.

The ONLY people who make money selling and buying Numismatics are THE COIN SALESMEN! I tell Gary North’s Subscribers this all the time. I’ve been into Gold and Silver Coins for over 25 years. The ONLY time I ever lost any money was when I bought $2500.00 of Numismatics [1982] that were “guaranteed to not lose value.” I sold at the TOP of the 1980’s Numismatic Craze — for $870.00! All my Numismatic friends have had the SAME experience–LOSING Money!

I would not worry too much about confiscation. There are just too many differences in the economy now and in FDR’s time. I think if you read history carefully, you will find less than 10% of the gold outstanding was actually turned-in. There are forces which would have you believe otherwise but if you are smart you will be long gold and silver.

One, the purpose of owning gold and silver bullion and/or gold and silver bullion coins is to have money in a form that cannot be debased. (I know, the Romans debased their coins by calling them in and “clipping” them and by reducing the metalic content, but we’re talkiing about today, when gold and silver coins do not circulate.) Owning gold/silver mining shares is not the same as having hard money. Owning gold/silver mining shares is a way to participate in gold/silver rising prices. But, when you own gold/silver shares, you do not have money.

The other aspect: after Roosevelt’s gold call-in, the mining companies that produced gold had to sell it to the US Treasury at the fixed price of gold. (Sales to the jewelry industry were premitted; such sales required the buyer to have permits from the gov’t to own gold bullion.) Should another call-in (or confiscation) occur, we could expect the government to again put a cap on the price of gold, thereby limiting the mining companies profits from gold.

I would honestly be more worried about a silver confiscation than a gold confiscation. Silver is needed in industry and military applications. If stockpiles got down to truly emergency levels, I could see the government “strategically” confiscating silver for “national security.”

A gold confiscation might cost them more than they would stand to gain, and think about the trillions of dollars they could easily steal from 401ks and pensions at the simple click of a mouse. Much easier than trying to pry gold and silver from my cold, dead hands.

If the U.S. government wanted to return to (some sort of) a gold “standard,” I assume it would require the government to acquire huge amounts of gold. Wouldn’t this likely precipitate the ‘confiscation’ of private sector gold?

Supposedly, the US holds 261,500,000 ounces of gold reserves, the largest single gold hoard anywhere. If the US were to return to a gold standard, those 261.5 million ounces would be a decent start as a backing for gov’t-issued money. Now, as to the possibility of confiscation, if the gov’t were to do so, it would violate the principle and understanding that comes with a gold standard, under which the gov’t acts as a repository for the physical metal while, for convenience, the people us paper receipts that can be redeemed for the physical gold. If the gov’t were to first confiscate privately-owned gold, then established a gold standard it’s credibility would be lost in the confiscation, resulting is little or no faith in the gov’t promise to redeem it paper for gold.

Gold confiscation may be somewhere in the future under a dictatorial gov’t, but today’s problem is the dollar’s debasement by Quantitative Easing and massive deficit spending. First, protect against dollar debasement, then takes steps you consider prudent to protect against confiscation

In 1933 the government “collected” gold from citizens, paying them the going rate per oz. Then, when it had collected “enough,” raised the price per oz which created instant, substantial profit/operating capital for the war while, at the same time, devalued the dollar which, effectively, swindled the American people.

Since FDR’s infamous 1933 call-in of gold, the fear of government confiscation has hovered over the gold market, but not so much the silver market. Too many people dismiss silver as a monetary metal despite silver having been used as money by more people than have used gold. So, consider buying silver.

Further, it is true that governments are the most dangerous entities when it comes to confiscating wealth. They do it daily with onerous taxes.

Finally, history has shown that when governments go after gold, it goes underground and is not offered up to the government in the quantities expected.

CMI Gold & Silver Inc. buys, sells and trades all the popular forms of gold and silver. Our sell prices are among the lowest of all established dealers. Our buy prices are nearly always the highest. Specials pricing for trades. Call us. Friendliest service on the internet.